A few days ago, I met a friend who creates websites at a café near Alderwood Mall. After taking a sip of coffee, he suddenly said, "I've become a tax collector now." At first, I thought he was joking, but it turned out to be true.

Starting October 1, 2025, Washington state will begin applying retail sales tax to certain services. The legal basis for this is ESSB 5814. The common understanding that only stores selling goods collect sales tax has already been broken for a year.

However, when I ask local sole proprietors, many still don't know about it. I can't say much either. I'm the type who gets scared first when it comes to taxes, despite having a scary name.

The new taxable categories announced by the state Department of Revenue (DOR) are mainly seven. Advertising services, IT services, and custom website development are the first ones mentioned. Advertising design, execution, campaign planning, and lead generation all fall under the advertising category.

In the IT sector, help desk, network support, training, and consulting are included. Websites encompass design, development, and maintenance support. This is where individuals who create websites locally will be caught.

The remaining categories include live presentations, research and security transport services, and temporary staffing. Sales of custom software and customization of off-the-shelf software are also included. Workshops or lectures with real-time communication can be taxable, whether in-person or online.

On the flip side, some services are exempt. Web hosting, domain registration, radio and TV advertising, and some newspaper ads are excluded. Locksmith services and telemedicine are also not subject to tax.

What my friend found most unfair was existing contracts. He had a contract before October and wondered why tax was being applied. There was a temporary grace period for this, but it ended on March 31, 2026.

So now, it's a time when taxes must be collected without any grace period. If there's no tax line on the invoice yet, it needs to be addressed immediately. If I were in his shoes, I would fix it starting from this month's invoice.

The tax rate is also something to pay attention to. Lynnwood will have a rate of 10.7% starting April 1, 2026. This is the state rate of 6.5% plus the local rate.

Honestly, I was a bit surprised when I first saw the 10.7% figure. For a $1,000 website estimate, the tax alone would be $107. From the customer's perspective, it's natural to feel like the estimate suddenly increased.

However, the tax rate can vary depending on the location of the service recipient, not the business address. Washington is a destination-based tax state, so if the customer is in Everett or Seattle, you need to check the tax rate for that area.

The DOR website has a tool to look up tax rates by address. It's a hassle, but it's cheaper than getting hit with back taxes later.

To collect sales tax, you must first be registered as a business in the state. Those who have only been concerned about B&O tax should check if retail sales tax is included in their registration information. The reporting form will also change.

For those who have already missed the boat, there is some good news. The DOR is running a penalty reduction program related to ESSB 5814. The reporting period from October 1, 2025, to December 31, 2026, is eligible.

The application deadline is September 30, 2027. However, this only waives penalties; taxes and interest must still be paid. If a business is not registered at all, they are advised to look into the voluntary disclosure program.

You should also be aware that the law has changed again this year. In March 2026, the legislature passed ESSB 6346, and starting July 1, new exemptions will be introduced. Certain services for schools and libraries, as well as live presentations by non-profit organizations, will fall under this.

This same law also includes provisions to remove several services from taxable status starting January 1, 2029. IT, custom software and website development, security, research, and temporary staffing will be included. Advertising services will remain taxable.

The issue is that there are conditions attached. If the 9.9% income tax on income exceeding $1 million per year included in the same law is declared invalid by the courts, this change will also lose its effect. So, it's safe to say that the 2029 changes are not yet confirmed.

My friend asked, "So does that mean we just have to hold out for two years?" My answer was that it's not about holding out; it's about properly collecting taxes now. The current regulations will apply until the end of 2028, regardless.

To summarize what sole proprietors need to do right now: First, check where your service falls within the seven categories on the DOR page. If it's unclear, it's best to contact the DOR directly for clarification.

Next, create a separate line for sales tax on your invoice form. Having a simple table to note the tax rates by customer location can also be helpful.

Finally, it's important to inform customers in advance. If you note that tax is separate on the estimate, it will reduce the chances of awkwardness later.

Those in advertising or marketing should be especially thorough. Since advertising will remain taxable even after 2029, it's not a temporary issue. It's better to set it up as a long-term system.

Personally, I find this change a bit exhausting. The smaller the business, the more time spent on tax calculations is a loss. Still, the law is the law, so we have to comply, even if we grumble about it.

Among the Korean business owners in our area, there are quite a few who do design, IT, and tutoring workshops. If you haven't added tax to your invoices yet, check the DOR page this weekend. Consulting with a tax professional is also recommended.

As I was leaving the café, my friend said, "Since I've become a tax collector, I should buy the coffee." Of course, the coffee price that day included tax.